A weaker-than-expected jobs report, a non-response from the nation’s economic guardians, a stock market cliff-dive and suddenly the R-word is in the air again.
By no fundamental measure has the nation veered into recession — there’s still job growth, economic expansion and low unemployment — but the improvements are slowing and a series of highly-watched danger signals have begun to flash red.
“We are uncomfortably vulnerable right now,” said Mark Vitner, chief economist for Piedmont Crescent Capital, a business consultancy. “All it would take is if we have some sort of unforeseen shock to the economy.”
Economists started warning about a recession a year ago because of hikes in interest rates which make borrowing more costly for consumers and companies alike. The economy for many months has defied those predictions, but recent days have seen fuel poured on that narrative fire.
For months, job growth has been decelerating in Georgia and across the U.S., sparking calls for rate cuts. But when the Federal Reserve’s rate-setting committee met last week, it voted to leave rates unchanged. Two days later, the Bureau of Labor Statistics reported weak job growth for the nation and a higher unemployment rate.
The stock market fell hard Friday. Then again Monday, stocks plummeted in early trading before recovering modestly before another fall. By mid-afternoon, the Dow Jones Industrial Average was down about 1,000 points, about 2.6%, while the tech-heavy Nasdaq was off 650 points, or 3.8%.
The stock prices of top Georgia companies such as Delta Air Lines, UPS, Home Depot, Mohawk Indutries and Aflac were all down in the early afternoon Monday.
Georgia job numbers for July will be released later this month. In June, the state’s economy added 8,900 jobs, but the growth was uneven and limited to a few sectors while the unemployment rate ticked upward.
In the previous 12 months, Georgia added 64,200 jobs — an expansion of 1.3% compared to the expansion of 2.2% in the 12 months before that.
The stock market isn’t the economy, but it isn’t not the economy either. Companies use stocks to raise money and compensate executives, while Wall Street’s gyrations make headlines and set the tone for much of the media coverage.
“The sell-off in the stock market is another warning sign,” Vitner said. “People said, ‘Wow, the economy is softer than we thought.’ And the political situation in the U.S. is very uncertain.”
A few weeks ago, a victory for Republican Donald Trump was widely accepted. Now, many polls show a toss-up between him and presumptive Democratic challenger Vice President Kamala Harris.
Moreover, the crisis in the Middle East threatens to worsen.
Inflation has been low in recent months, gas and food prices have dropped, but the painful price increases in 2021-2023 took a toll, said Amy Crews Cutts, economic consultant to Primerica, the Duluth-based financial services firm.
Recent wages outpace inflation, she said. “But middle-income households have made little headway in making up for the run of high inflation.”
Americans owe 45% more now on their credit cards than they did in early 2021, after the hunker-down months of the pandemic, according to the Fed. The delinquency rate on credit cards is at its highest point since 2011, said Ted Rossman, senior analyst for Bankrate, an online financial advisor.
“More people are carrying more debt for longer periods of time,” he said.
Yet that debt has been amassed partly by households continuing to spend, feeding the demand for business services and goods.
“Loan demand continues to be strong in the markets that we serve, and general business development activities remain steady,” said Ryan Earnest, chief executive of the First National Community Bank, which just opened another branch in the Atlanta suburb of Dallas. “No, we have not made any changes to our plans because of economic uncertainty.”
A recent Bank of America report showed credit card spending per household down 0.5% during the past year, yet that spending was up in the past few months. “While softening, there is still some momentum behind consumer spending,” wrote bank economists.
Several economic signs have signaled trouble, but they have been discounted since they have so far seemed like false alarms.
The Conference Board’s index of leading indicators has intermittently signaled a downturn. And the yield curve — the comparison of short-term and long-term interest rates — started calling imminent recession in mid-2022.
But perhaps the most alarming recent sign was the triggering of the Sahm Rule.
The rule is based on the insight by former Fed economist Claudia Sahm that recession was historically signaled by a 0.5 percentage point increase in the average unemployment rate over the lowest point of the past.
Sahm herself has said in recent days that she’s not sure her rule is right this time.
“We are not in a recession now… but the momentum is in that direction,” she told CNBC. “We are pointed towards what would be recessionary dynamics and that should be a real wake-up call.”
Sahm, currently chief economist at New Century Advisors, thinks it’s time for the Fed to start cutting rates.
The national unemployment rate last month was 4.3%, compared to 3.5% in July 2023. The state jobless rate in June was 3.3%, compared to 3.1% a year earlier.
Prominent Georgia stocks on Monday
Home Depot: $350.01, down $5.42
Delta Air Lines: $37.93, down $1.90
UPS: $126.02, down $2.04
AFLAC: $97.17, down $2.04
Coca-Cola: $68.10, down $1.22
Southern Co.: $86.57, down $2.01
AGCO: $87.64, down $1.93
Mohawk Industries: $147.00, down $5.51
Genuine Parts Co.: $138.35, down $4.23
Equifax: $278.47, down $6.16
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